These are not the best of times for most investors in stocks. But they don't have to be the worst of times either. Earlier this week, Warren Buffett commented in a CNBC interview that the U.S. is falling on recessionary times. "I would say, by any commonsense definition, we are in a recession," Buffett remarked. With Buffett's conglomerate Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) operating dozens of businesses in industries ranging from bricks to underwear to candy, in addition to large stakes in Coca-Cola (NYSE: KO), Kraft (NYSE: KFT), and American Express (NYSE: AXP), Buffett is in a very strong position to comment on the state of the economy. But before you rush en masse for the exits and sell off everything, take a step back and make sure you're not falling victim to Mr. Market's perilous traps.

Hindsight is 20/20
Ask yourself the following:

  • How many times have you invested in a company only to see the stock drop 10% to 20% or more?
  • How many times have you sold because you couldn't "suffer" any additional price declines?
  • If you sold, how many times did you witness the stock price go back up to your purchase price, and maybe even higher?
  • If you didn't sell, how often have you had the conviction to buy more at a lower price?

Be honest with yourself. The first question is easy. Every investor, including guys like Buffett, has invested in businesses only to see the price decline. Buffett's purchase of The Washington Post Co. (NYSE: WPO) declined for a period of months in the early 1970s after his initial investment. But that original $11 million stake is now worth $1.3 billion.

In today's market, it's par for the course to make an investment only to see the value decline. It's very easy to second-guess yourself -- thinking that you moved in too quickly. This thought process is simply the brain looking at the world through a rearview mirror. Thinking about your investment decisions with the benefit of hindsight is often a recipe for disaster.

Most investors -- at one point or another -- have likely surrendered to question two. It's not easy to watch your money vanish, even if it's only on paper. And if taking a loss didn't damage your confidence enough, taking a loss only to witness the price go back up is even worse. Now you really feel dumb.

This shouldn't be. If you have really taken the time to understand the business and make your investments based on fundamental business-oriented reasons, you shouldn't be alarmed by short-term stock price movements. As Buffett remarks, "In the short run the market is a voting machine. In the long run it is a weighing machine." If the market continues to vote against you, then have the conviction to take advantage of sale prices on your favorite businesses.

Don't crave instant gratification
If your analysis is sound and you don't overpay for the business, you will eventually be rewarded. Currently, not many investors are being rewarded, as consumers are keeping tighter control of their spending. The world is a consumer-based economy, so everything suffers when spending is reduced, some sectors more than others, of course.

So, while this might not be the best environment for high-end consumer stocks like Best Buy or Starbucks, if the stock price gets to a point that makes the business a good a investment going forward, seize the opportunity. Just like it doesn't make sense to think that a good business can grow sales by 50% forever; it also doesn't make sense to assume that a great business with good management will forever report declining sales and profits.

Admit mistakes
All investors make mistakes. Buffett's recent letter to shareholders recounted his worst deal -- Dexter shoes. Part of making mistakes is learning from them and becoming a better investor. Still, you don't' want to make too many mistakes. Too many mistakes will kill you in this business. But if you stick to a simple business-oriented investment philosophy, you'll be able to limit your mistakes.

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Berkshire Hathaway and Coca-Cola are Inside Value recommendations. Berkshire Hathaway, Starbucks, and Best Buy are Stock Advisor recommendations. Kraft is an Income Investor pick. The Motley Fool owns shares of Berkshire Hathaway.

Fool contributor Sham Gad runs the Gad Partners Funds. He has a position in Berkshire Hathaway. The Fool's disclosure policy won't leave you second-guessing yourself.